Profit or Non-Profit: Are Hospitals Selling Out?

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by Colleen Fuller

Canada's $75 billion health care system is changing rapidly. Nowhere is this more apparent than in the shift of service delivery from publicly funded, non-profit institutions, like hospitals, to the corporate sector.

Privatization discussions focus on the public/private split in health spending a split that right now stands at 68%-32%. But that breakdown masks another, equally important, reality: a greater and greater share of our public health dollars are flowing through publicly-funded facilities into the pockets of investors and shareholders. This is leading to an outright integration of Canada's largest non-profit providers hospitals with aggressive North American health corporations.

Although almost all Canadians believe hospitals are publicly owned and accountable institutions, under provincial legislation 95% operate on a non-profit basis. Most of Canada's approximately 850 hospitals are owned and operated by non-profit, voluntary organizations.

Hospitals receive the largest block of provincial health funding, approximately 34% compared to 15% for physician services. This money funds procedures insured by provincial health plans, and sustains everything from medical records to nutritional services.

Hospital privatization occurs when services go beyond the reach of provincial health insurance plans. For example, the closure of outpatient physiotherapy services in many hospitals. Patients then must pay a user fee or turn to their private insurer for coverage.

Not surprisingly, private insurers describe this "de-listing" as creating "the potential for millions of dollars of new business". Such closures have boosted the profits of companies like Columbia Health Care (a subsidiary of U.S.-based Sun Health Care Group), which grew from a two-clinic operation 15 years ago to the largest private rehabilitation company in the country.

"The government should butt out," Columbia's U.S. owner, Andrew Turner, responded when asked what he thought the proper role of government was in the health-care system.

Since most hospitals are not government-owned, they cannot be "privatized". However, they can be and in some cases are being turned into profit-generating enterprises.

In the United States, non-profit hospitals whose unding sources are drying up are merging with or being sold to major corporations. In Canada, in response to provincial funding cuts, many non-profit hospitals are integrating with global corporations.

Such integration is occurring in two basic forms: "outsourcing" (contracting out) and joint ventures (partnerships).


Hospitals are moving to outsource an array of services outside the "basic clinical care" required by patients. Everything from nutritional and security services to information systems and patient records are now provided to many hospital patients by multinationals like Marriott, Versa, ServiceMaster, Data General, Johnson Controls, MDS and U.S. Turbine.

In 1993, The Toronto Hospital (TTH), a leading outsourcer in Canada, embarked on a plan to move what it called "non-core" services to the corporate sector. Linked to the University of Toronto, TTH manages 1200 beds and an annual budget of more than $500 million.

Although concerns were expressed that the private sector would lower quality of care and levels of service, they explained that the hospital would apply its own resources more effectively and at less cost to its "end product".

What were these end products produced in the hospital sector?

"There are some aspects of health care that can be compared with a manufacturing organization," said Michael Young, Chief Financial Officer of Toronto's Sunnybrook Hospital which has also been outsourcing a range of services. "The process is patient care; the output is well patients."

Hospital administrators are encouraged in this line of thinking by health corporations which, in 1995 alone, drained US$890 million out of the U.S. hospital sector in outsourcing contracts. Many of the same companies claim that outsourcing will provide Canadian hospitals with significant cost-savings, greater efficiency, and improved quality.

These arguments hold great appeal for administrators facing cuts in public funding, as well as for politicians wielding the knife, but outsourcing has not been shown to be better, more efficient, or less costly.

Comparisons of costs in the United States, where corporate outsourcing contracts escalated by almost 46% from 1995 to 1996, and Canada, where the majority of hospitals continue to supply most of their own needs, do not support the argument that outsourcing saves money.

Studies show higher costs among American hospitals relate primarily to the use of more expensive non-patient care services. Hospital support services in the U.S. cost 24% more per day than they do in comparable Canadian acute care facilities.

Overall, hospitals in Canada were 41.6% less expensive per discharge in 1995, with a 47.9% longer average length of stay. Yet, Canadian hospitals are following the failed path of their U.S. counterparts.

"Joint Ventures"

While outsourcing is attractive, the opportunity to generate alternative sources of revenue to offset funding reductions by provincial governments is growing in popularity among hospitals.

This shift from saving money to generating revenues is a significant one that threatens the principles of non-profit delivery of services in Canada's hospital sector.

The search for revenue is drawing many hospitals into joint ventures and partnerships with global corporations. In 1994, St. Joseph's Hospital in London, Ontario, opened the Pall Mall Rehabilitation Clinic with Dynacare, a multinational health services company.

Profits from the joint venture are shared, upplementing St. Joseph's reduced provincial funding. The hospital said the new rehab centre would offer "compassionate treatment while recognizing and meeting the requirements of its financial sponsors".

St. Joseph's is not alone. The Toronto Hospital and MDS Inc., Canada's largest home-grown health multinational, established a joint partnership in a for-profit lab that will provide services to other hospitals and private companies in the metropolitan region.

Joint ventures with the hospital sector, said MDS, would give it "a continuing stream of income, not just the one-shot equipment sales".

Osteopharm, a pharmaceutical company owned jointly by MDS and Queen Elizabeth Hospital, which serves an elderly patient population in Toronto, was sold in 1997 to Vancouver-based Biocoll, a biopharmaceutical company developing drugs to treat osteoporosis. The hospital now is a major shareholder (along with MDS) in the corporation.

Joint ventures and outsourcing are weaving Canada's hospital sector into a world dominated by investors, shareholders, stock market analysts and financial advisors. It should come as no surprise, therefore, that for-profit hospitals are securing a foothold north of the 49th parallel.

Today, there are new and powerful alliances among Canada's corporate and political elite determined to recreate a health system that will, quite bluntly, make investors rich. But Canadians are beginning to feel the consequences of the move to for-profit health care and they are organizing under the umbrellas of groups like the Canadian Health Coalition and its provincial counterparts.

It is a fight that Canadians literally cannot afford to lose and, if we maintain our stubborn notions about universal access and non-profit services, it is a fight we can win.

Colleen Fuller is the author of Caring for Profit: How Corporations Are Taking Over Canada's Health Care Sector, to be published this fall by New Star Books and the Canadian Centre for Policy Alternatives. Based in Victoria, British Columbia, she has written extensively about health care issues for the last ten years.

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